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Emerging Market Local Currency Bond Yields and Foreign Holdings in the Post-Lehman Period - a Fortune or Misfortune?
Author:
Mr. Christian H Ebeke
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and
Miss Yinqiu Lu
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Series:
IMF Working Papers
Volume/Issue:
Volume 2014: Issue 029
Language:
English
Publication Date:
12 Feb 2014
DOI:
https://doi.org/10.5089/9781484302859.001
ISBN:
9781484302859
ISSN:
1018-5941
Pages:
38
Keywords:
WP; government bond; inflation rate; yield volatility; Foreign Holdings; Domestic Bonds; Yields; Volatility; Poland yield regression; government bond bond yield; endogeneity issue; foreign holding; Bond yields; Yield curve; Sovereign bonds; Securities markets; Currencies; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The paper shows that foreign holdings of local currency government bonds in emerging market countries (EMs) have reduced bond yields but have somewhat increased yield volatility in the post-Lehman period. Econometric analyses conducted from a sample of 12 EMs demonstrate that these results are robust and causal. We use an identification strategy exploiting the geography-based measure of EMs financial remoteness vis-à-vis major offshore financial centers as an instrumental variable for the foreign holdings variable.The results also show that, in countries with weak fiscal and external positions, foreign holdings are greatly associated with increased yield volatility. A case study using Poland data elaborates on the cross country findings.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund